Earlier this month, the European Commission published its proposals for a review of the current Insurance Mediation Directive. The proposals form part of a wider legislative initiative aimed at enhancing consumer protection in the retail financial services industry, including stockbrokers, insurance intermediaries, insurance companies, and banks offering retail investment funds.
Insurance intermediaries will be required to comply with additional disclosure rules- Matthew Mizzi
The aims behind the revisions to the directive include the levelling of the playing field for insurance intermediaries; improving the quality of information given to consumers; and facilitating the provision of cross-border services by insurance intermediaries. Once the proposals become law, they would need to be implemented into Maltese legislation.
The upside of the Commission’s proposals is that insurance intermediaries – brokers, agents and tied intermediaries – registered in Malta should find it easier to conduct business across the single market.
The Commission is suggesting that details of insurance intermediaries offering their services or having branches established across Europe on the basis of their European rights be published on a central register to be updated by the pan-European insurance supervisory authority, EIOPA.
The Frankfurt-based organisation will be required to keep a list of laws that insurance intermediaries will need to comply with when they offer their services across the EU, known by industry practitioners as “general good provisions”. This would hopefully bring down compliance costs and make it easier for insurance intermediaries to tap into the opportunities of the single market.
The Commission is proposing facilitating the access of claims handlers and loss adjusters to the single market. They will fall within the definition of insurance intermediary and will be required to declare their activities to the regulator and comply with the requirements of the directive.
Insurance intermediaries will be required to comply with additional disclosure and consumer protection rules.
The Commission is suggesting binding disclosure rules applicable to intermediaries selling life policies. Intermediaries will be required to provide information on their remuneration and other charges as may apply.
Consumers will have a right to demand information on the remuneration received by the intermediaries whenever purchasing a non-life product, such as car cover.
After five years of implementation of the rule, insurance intermediaries will be required to disclose details on their remuneration in all cases. It appears that the Commission intends the disclosure regime to be applicable to both insurance intermediaries and direct sales by insurance undertakings.
Quite understandably, this proposal has so far attracted negative comment from industry stakeholders across Europe, including the association of British intermediaries BIBA, and its pan-European counterpart Bipar. They argue this will create an unfair situation where some sellers will be required to disclose information while others would not, simply because they are not covered by the directive.
One should welcome increased transparency, but the authorities should ensure that everyone is covered by the rules, should they ever go through.
Maltese players should take note of proposed changes to the information requirements applicable to the sale of insurance investment products like linked long term contracts of insurance – contracts of life insurance whose value depends on the performance of an underlying basket of investments.
The Commission is proposing that people selling insurance investment products are to act fairly and professionally in accordance with the best interests of customers and that information is fair clear and not misleading. People offering life insurance investment products will be required to disclose information on an array of items including information on the commission rates payable and charges.
In terms of a separate legislative proposal that was published in conjunction with the review, people designing products as unit-linked life insurance policies will be required to draw up a ‘Key Information Document’ containing information on costs, risk profile and past performance where appropriate.
The Commission’s changes will now be discussed with representatives of the European Parliament and the Council of Ministers.
Disclosure and openness are now swiftly becoming the mantra of regulators following the perceived misgivings of law and regulation during the financial crisis.
Although the insurance industry had little or nothing to do with the crisis, it is still being affected by the fallout. One wonders whether the sweetener of increased market access will help intermediaries swallow the pill of reformed practices and increased disclosure.
Additional research by Clement Mifsud Bonnici.
mmizzi@jmganado.com
Dr Mizzi is on the insurance team at Ganado & Associates, Advocates.